Supreme Court of India
M/S Raveechee And Co. vs Union Of India on 3 July, 2018Author: S Bobde



CIVIL APPEAL Nos. 5964-5965 OF 2018
[Arising out of SLP (CIVIL) Nos. 3310-3311 of 2016]

M/s Raveechee and Co. …Appellant(s)


Union of India …Respondent(s)



1. Leave granted.

2. These Civil Appeals arise out of the final judgment and order of

Gujarat High Court dated 23.07.2015 in F.A No 189 of 2005 and the

final judgment and order dated 5.11.2015 in MCA No 3178 of 2015 in

F.A No 189 of 2005. The High Court partly allowed the appeal of the

Respondent- Union of India and quashed Order of the Arbitrators and

set aside the amount awarded by them in respect of Claim No 12. The
Signature Not Verified

Digitally signed by
Date: 2018.07.03
16:31:35 IST
Arbitrators, under Claim No. 12 awarded interest pendente lite at 12%

on the award of Rs. 30 lacs excluding security deposits amounting to

Rs. 44,92,800/- per annum from 26.09.1988 to 22.03.2001. Further,

the High Court dismissed the review application filed by the appellant.

3. The appellant – M/s Raveechee and Co. and the respondent-

Union of India entered into a contract dated 02.06.1981 for quarrying,

stacking and loading stone ballast, broken stone aggregate, rubble etc.

from the Western Railway quarry at Udvada at an estimated cost of Rs.

55,81,000/. Thereafter, disputes arose between the parties due to

which the appellant called upon the General Manager, Western Railway

to appoint Arbitrators in order to settle the dispute. The Arbitration

proceedings commenced on 26.09.1988 and the award was passed on


4. The Arbitral Tribunal comprising of Shri N.K. Gupta, Chief

Engineer (C&S) and Shri R.K. Sinha, Director, Finance, KRCL, awarded a

total of Rs. 76,43,800/- as against the claim of Rs. 1,34,87,044/- raised

by the appellant. An award for the Claim Nos. 1-12 raised by the

appellant was made. The present dispute relates to the amount

awarded under Claim No. 12 i.e. Interest. The Arbitrators awarded the

appellant interest pendente lite at 12% on the award for damages

excluding security deposits amounting to Rs. 44,92,800/- from

26.09.1988 to 22.03.2001.

5. The appellant thereafter filed a Civil Miscellaneous Application

No.22 of 2001 along with the award dated 22.03.2001 in the Civil

Court. The award was made a rule of the Court by an order dated
29.07.2004 under Section 17 of the Arbitration Act of 1940 (hereinafter

referred to as ‘the Act’) by the Civil Court. The respondent challenged

the order of the Civil Court dated 29.07.2004 in appeal. The High

Court partly allowed the appeal and set aside the order of Arbitrators

qua Claim No.12 under which the Arbitrators had awarded Rs.

44,92,800/- as interest pendente lite. The Arbitrators awarded

amounts in favour of the appellant as follows: Claim No.1 – Rs. 12 lacs,

Claim No.3 – Rs. 8 lacs and Claim No. 5 – Rs. 10 lacs and interest on

the total amount of damages (i.e. Rs. 12 lacs + Rs. 8 lacs + Rs. 10 lacs

= Rs. 30 lacs) excluding the amount of security deposits. Thus, interest

on Rs. 30 lacs from 26.09.1988 to 23.03.2001 at 12 % amounting to

Rs. 44,92,800/-.

6. The appellant, aggrieved by the High Court’s judgment and order

dated 23.07.2015 filed a review application before the High Court. The

High Court dismissed the review application vide judgment and order

dated 05.11.2015. The present SLPs are filed against the High Court

judgments and orders dated 23.07.2015 & 05.11.2015 passed by the

High Court.

7. The question that arises for determination before this Court is:

Whether Clause 16(3) (reproduced hereafter) of the General Contract

Clauses (hereinafter referred to as “GCC”) restricted the power of the

arbitrator to award interest pendente lite?

8. In the present case, the Arbitral Tribunal giving effect to the

purport of Clause 16(3) did not award any interest on security deposits.

The clause in terms states that no interest will be payable on earnest

money, security deposits or on any amounts payable to the contractor

under the contract.

The Arbitrators in their award have relied on Clause 16(3) of the

contract to deny interest on the security deposit. The Arbitrators held

that what was intended under Clause 16(3) barred the grant of interest

on earnest money, security deposit and amounts payable to the

appellant, it does not in any way bar grant of interest pendente lite.

9. Clause 16(1) and 16(3), which are relevant, read as follows:

“16(1):- The earnest money deposited by the
contractor with his tender will be retained by the
Railways as part of security for the due and faithful
fulfillment of the contract by the contractor. The
balance to make up the security deposit, the rates
for which are given below, may be deposited by the
contractor in cash or in the form of Government
Securities or may be recovered by percentage
deduction from the contractor’s ‘on account’ bills.

Provide also that in case of defaulting contractor the
Railway may retain any amount due for payment to
the contractor on the pending ‘on account bills’ so
that the amounts so retained may not exceed 10% of
the total value of the contract.

“16(3): No interest will be payable upon the earnest
money and the security deposit or amounts payable
to the Contractor under the Contract, but
Government Securities deposited in terms of sub
clause (1) of this clause will be payable with interest
accrued thereon.”
10. On behalf of the Union of India, it is contended that the

Arbitrators by reason of Clause 16(3) could not have awarded interest

pendente lite. This contention is incorrect. Ex facie the clause does not

deal with interest pendente lite. In terms, the clause only bars interest

upon earnest money and security deposits or amounts payable to the

contractor under the contract. The above mentioned amounts are

amounts which in a sense belong to the contractor. They are amounts

voluntarily deposited with the other contracting party in order to be

refunded or forfeited depending on performance of the contract. As

such they are not amounts of which the contractor is deprived the use

of against his wishes, so as to attract interest.

It is not the case of the Government before us that interest has

been awarded to the contractor under any of the three heads. Neither

does any question of interest payable on Government security arise in

the present case. The contention put forth by the Government is that

the above clause in the agreement bars the Arbitrators from awarding

interest pendete lite. On a plain reading we find that there is no such


11. In fact, the Arbitrators have awarded amounts to the claimant on

account of the losses suffered by them for various reasons, mainly due

to the ban on mining. These amounts are not awarded on account of

any payment due under the contract but are awarded on losses

determined in the course of arbitration or the ‘lis’.

A claimant becomes entitled to interest not as compensation for

any damage done but for being kept out of the money due to him.

Obviously, in a case of unascertained damages such as this, the

question of interest would arise upon the ascertainment of the

damages in the course of the lis. Such damages could attract interest

pendente lite for the period from the commencement of the arbitration

to the award.

Thus, the liability for interest pendente lite does not arise from

any term of the contract, or during the terms of the contract, but in the

course of determination by the Arbitrators of the losses or damages

that are due to the claimant. Specifically, the liability to pay interest

pendente lite arises because the claimant has been found entitled to

the damages and has been kept out from those dues due to the

pendency of the arbitration i.e. pendente lite.

12. We are, therefore, of the view that the Arbitrators rightly

awarded interest pendente lite for the period from 26.09.1988 to

23.03.2001 which is the date of the award, on the amounts found due

to the claimant. Undoubtedly, such a power must be considered

inherent in an Arbitrator who also exercises the power to do equity,

unless the agreement expressly bars an Arbitrator from awarding

interest pendente lite. An agreement which bars interest is essentially

an agreement that the parties will not claim interest on specified

amounts. It does not bar an Arbitrator, who is never a party to the

agreement from awarding it.

We are not called upon, in this case, to decide whether parties

can agree that they will not claim interest pendente lite even in respect

of unascertained damages determined in the course of arbitration. The

present case must be decided on the general rule that an arbitrator

has the power to award interest unless specifically barred from

awarding it; and the bar must be clear and specific.

13. In Irrigation Deptt., State of Orissa v. G.C Roy1 this Court

thoroughly considered the question of power of the arbitrator to award

interest pendente lite and held that when the agreement between the

parties does not prohibit grant of interest and where the party claims

interest and that dispute has been referred to an arbitrator, then the

arbitrator does have the power to award interest pendente lite.

14. Subsequently, this Court in the cases of Board of Trustee for the

Port of Calcutta v. Engineers-De-Space Age2 and Madnani Construction

Corporation Pvt. Ltd. v. Union of India and Ors. 3 held that according to

the view taken in the case of Irrigation Deptt., State of Orissa (supra),

the arbitrator does have the power to award interest pendente lite.

The Court observed that it essentially depends upon the ouster in each

clause, which means that unless there is an express bar that provides

(1992) 1 SCC 508
(1996) 1 SCC 516
(2010) 1 SCC 549
that the arbitrator cannot award interest pendente lite, the grant of

interest pendente lite will predominantly be based on the arbitrator’s

discretion to award the same.

15. In Sayeed Ahmed & Co v. State of Uttar Pradesh and Ors. 4, this

Court referred to the decision in Superintending Engineer and Ors. v. B.

Subba Reddy5 and observed thus:

“11. Two more decisions dealing with cases arising
under the Arbitration Act, 1940 require to be noticed.
In Superintending Engineer v. B. Subba Reddy (1999)
4 SCC 423 this Court held that interest for pre-
reference period can be awarded only if there was an
agreement to that effect or if it was allowable under
the Interest Act, 1978. Therefore, claim for interest
for pre-reference period, which is barred as per the
agreement or under the Interest Act, 1978 could not
be allowed. This Court however held that the
Arbitrator can award interest pendente lite and
future interest.”

16. A three Judge Bench of this Court in the case of Union of India v.

Ambica Construction6 held that the power of an arbitrator to grant

pendente lite interest will depend upon several factors such as;

phraseology used in the agreement clauses conferring power relating

to arbitration, nature of claim and dispute referred to arbitrator, and on

what items power to award interest has been taken away and for which

period. The Court observed:

“34. Thus our answer to the reference is that if
contract expressly bars award of interest pendente
lite, the same cannot be awarded by the Arbitrator.
(2009) 12 SCC 26
(1999) 4 SCC 423
(2016) 6 SCC 36
And that the bar to award interest on delayed
payment by itself will not be readily inferred as
express bar to award interest pendente lite by the
Arbitral Tribunal, as ouster of power of the arbitrator
has to be considered on various relevant aspects
referred to in the decisions of this Court , it would be
for the Division Bench to consider the case on

17. Further, this Court considered an identical clause in the contract

in the case of Ambica Constructions v. Union of India7, wherein it

observed that the Clause of the GCC did not bar the arbitrator from

awarding interest pendente lite and affirmed the award passed by the

arbitrator. The three Judge Bench of this Court held that the contention

raised by the Union of India based on the Clause of the GCC that the

arbitrator could not award interest pendente lite was not a valid

contention and the arbitrator was completely justified in granting

interest pendente lite.

Relying on the three Judge Bench judgment in Union of India v.

Ambica Construction (supra) and in Irrigation Deptt., State of Orissa

(supra), this Court held that the bar to award interest on the amounts

payable under the contract would not be sufficient to deny the

payment of interest pendente lite.

18. Thus when a dispute is referred to for adjudication to an

arbitrator, a term of such a nature as contained in the Clause 16(3) of

GCC, that is binding on the parties cannot be extended to bind an

Arbitrator. The Arbitrator has the power to award interest pendente lite
(2017) 14 SCC 323
where justified. We, therefore, set aside the judgment of the High

Court and restore the award passed by the Arbitral Tribunal in respect

of Claim No. 12.

19. Appeals are allowed accordingly.

[ S.A. BOBDE ]


JULY 03, 2018



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